I would like to take this opportunity to Wish Everyone here a "Wonderfull Christmas" and a "Profitable NEW Year".
morrie
Some interesting views on gold.
> NOW IS THE TIME TO BUY GOLD AND ITS SHARES: Four good
> reasons follow.
>
>
>
> GOLD AND JAPANESE GOVERNMENT BONDS: The Japanese government
announced Tuesday morning
> that they would cease purchase of Japanese long-term government bonds. In essence,
they have decided to
> allow their long-term interest rates to approach those of most European countries.
While still below nominal yields on U.S. long-term bonds, the effect of higher Japanese
rates will serve as significant competition for U.S. Treasuries, since the yen generally
appreciates against most currencies over any extended period of time. Also, the
Japanese themselves, historically substantial buyers of U.S. Treasuries, will be more
inclined on the margin to purchase their own country's bonds. The multi-year recession
in Japan combined with the euphoric U.S. stock market has dampened the speed of the
yen's appreciation, but the uptrend is still clearly intact. Therefore, yields on U.S. bonds
will have to increase to keep pace, thus increasing the costs of corporate borrowing.
The net effects are as follows:
1) higher long-term U.S. rates;
2) lower U.S. corporate profits, since all U.S. corporations will have
to borrow money more expensively; 3) since short-term rates are not
affected, there will be a greater spread between short-term and
long-term U.S. rates. Because of the continued concern over worldwide
recession, short-term rates will not be able to rise, thus keeping the
spread wide.
4) As a result of lower corporate profits, equity prices will eventually
decline. Over the short term, P/E
> ratios can expand to compensate for decreasing profits, exactly as has been occurring
in recent months, but this game can only be played for so long. Inevitably, lower profits
must mean lower stock prices.
5) With short-term interest rates being lowered around the world, time
deposits serve as less competition for precious metals, since there is
less interest to be lost by being invested in gold, which pays no
interest.
6) With long-term interest rates on the rise, both stocks and bonds will
perform poorly, thus increasing the attractiveness of alternative
investments such as gold mining shares.
7) As corporate profits fall, U.S. equities will decline, which will
bring down the U.S. dollar. A falling dollar combined with a
historically wide spread between short- and long-term rates is the ideal
scenario for gold.
8) Therefore, the Japanese government decision is very bullish for
gold, both over the short and the long run. A similar increase in
long-term Japanese rates caused a sharp gold rally in late 1989. This
time the rally should be much greater in percentage terms, since gold is
starting from a far lower base. Expect the average gold mining share
price to increase by at least 50% over the next six months.
> INDIAN INNOVATION: India is the world's number one gold importing country,
with the U.S. a distant
> second. The state-run Unit Trust of India, that country's largest mutual fund, has
tentative plans to implement a gold deposit scheme. The aim is to tap India's vast
reserves of gold in private hands by accepting gold as deposit and as collateral to lend
funds, according to Ravi Vasantraj, vice president at Mecklai Financial and Commercial
Services Ltd. Such a scheme will encourage Indian consumers to buy the yellow metal
as buyers will be able to effectively earn interest on their gold from the Unit Trust of
India.
>
> PRIDE GOETH BEFORE A FALL: Managers of U.S. bond funds registered their
lowest ever level of cash
> as a percentage of assets, according to MCM MoneyWatch's Investor Survey, the
company reported on
> Tuesday. In the week ended December 21, cash represented only 2.45% of total
bond fund assets, an all-time low. Historically, abnormally low cash levels correlate with
major tops in the bond market. With stocks at a record high P/E at the same time that
bonds are at record low cash levels, it is possible that both will decline in tandem, which
would spur mutual fund investors to seek out alternative fund choices such as gold
mining shares. (There are other alternative investments besides gold shares, of course,
but money market funds and GICs cannot provide the potential for double-digit returns
that some investors seek, while most other investments that correlate inversely with
stocks and bonds are not nearly as liquid as gold mining shares and, more importantly,
are simply not available for most mutual fund investors.)
>
> ONE LAST REASON: Before each of the major gold rallies since 1973, gold made
a false move lower,
> accompanied by steady commercial accumulation, immediately before the rally began.
The XAU, an index of
> gold mining majors, is now at its lowest point since September 9, 1998, while the
traders' commitments
> continue to improve.
>
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